On December 27, Cloud Corp

question 128

Multiple Choice

On December 27, Cloud Corp. accepted delivery of merchandise that it purchased on account. As at December 31, Cloud had recorded the transaction, but did not include the merchandise in its year-end inventory. The effect of this on its December 31 financial statements would be

• A) net income, current assets, and retained earnings were understated.
• B) net income was correct and current assets were understated.
• C) net income was understated and current liabilities were overstated.
• D) net income was overstated and current assets were understated.

Understand the role of safety margin in financial planning.

Recognize the limitations and criticisms of CVP analysis.

Differentiate between fixed, variable, and total costs in the context of CVP analysis.

Explain the concept of operating leverage and its impact on profitability.

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Definitions:

Eusocial System

A complex social structure observed in some animals, characterized by cooperative caregiving, division of labor, and overlapping generations.

Instinct

Inherent inclinations towards a particular behavior, not learned but biologically programmed, observed in animals and humans.

Cuckoo Bird

A bird known for laying its eggs in the nests of other bird species, leading to its young being raised by the host birds.

Learned

Acquired or developed as a result of experience, study, or being taught.